Explanation

The present value factor for year 1 at a 10% discount rate is 1 / (1 + 0.10) = 1 / 1.10 = 0.91.

This means that $1 received one year from now is worth $0.91 today, assuming a 10% discount rate.

Explanation

IRR handles project duration through cash flows.

Considers timing and magnitude of returns, implicitly accounting for project length.

Explanation

If the IRR is less than the required rate of return, a company should Reject the project.

As it's not expected to generate sufficient returns to justify the investment.

Rejecting the project allows the company to allocate resources to more profitable opportunities and avoid potential losses.

Explanation

Taxes reduce cash flows, decreasing IRR.

Impact is significant in high-margin projects or high-tax countries.

Explanation

Decreasing ending inventory means that more inventory has been sold, which increases the Cost of Goods Sold (COGS).

As a result, COGS increases, and gross profit decreases.

This is because the cost of the inventory that has been sold is transferred from inventory to COGS.

Explanation

The Effective Annual Rate (EAR) takes into account the compounding of interest within a year, whereas the nominal interest rate does not.

This making the EAR a more accurate representation of the actual interest earned or paid over a year.

Explanation

The principal is the initial amount of money borrowed or invested.

It serves as the basis for calculating interest.

It is the original amount before any interest is earned or paid.

Explanation

A project with a positive NPV may still be rejected due to:

• High initial cost (funding issues)
• Insufficient resources (lack of personnel, equipment, etc.)
• Strategic misalignment (not aligning with company goals/strategy)

NPV is just one factor in the decision-making process, and other considerations can outweigh a positive NPV.

Explanation

A strength of NPV is that it considers all cash flows.

Both inflows and outflows, over the project's life.

It providing a comprehensive picture of a project's value.

Explanation

Taxes decrease NPV by reducing cash flows.

This making projects less valuable and less attractive financially.